Moody's Investors Service has downgraded the Financial Strength Rating (FSR) of First International Bank of Israel (FIBI) to C- from C. The outlook for the FSR remains negative. This rating action concludes a review started in mid-May 2002.
The downgrade takes into account the gradual weakening of FIBI's intrinsic financial strength, characterized by a worsening asset quality, a deteriorating financial performance and a declining core capital position, says Moody's.
According to Moody's, although FIBI has consistently maintained superior asset quality to that of its peers, nonetheless, the troubled operating environment has taken a heavy toll on its asset quality. The economic slowdown and the precarious security situation have negatively affected the financial fundamentals of its borrowers, a growing number of whom are facing difficulties in meeting their debt obligations.
Although the bank has experienced a credit quality deterioration across a number of sectors, its exposure to the communications sector seems to be the main culprit for the significant increase in problematic loans.
The bank's deteriorating credit quality resulted in a precipitous increase in loan loss provisions, forcing FIBI to incur a net loss of 148 million Israeli shekels ($31.4 million) for the first half of 2002 as compared to a net income of NIS 133 million for a similar period the year before, says Moody's.
Further, the bank has experienced a decline in its core capital position during recent years, with its Tier 1 capital positions dropping from 7.7 percent in 1998 to a low 6.3 percent in June 2002. This core capital weakening trend has been taking place in tandem with the growing risks that the bank is facing in light of the deteriorating operating environment, says Moody's.
The negative outlook for the C- FSR reflects the high pressure on FIBI's financial fundamentals due to the continuing economic slowdown in Israel. The difficult operating conditions in FIBI's domestic market suggest that the likelihood of a significant reversal in the bank's financial fundamentals in the near future remains relatively low, prompting the rating agency to retain a negative outlook on the FSR.
First International Bank of Israel is headquartered in Tel Aviv, Israel. The bank had consolidated assets of NIS 67 billion ($14.1 billion) in the first have of the year. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
